Russell Artzt, the quiet man behind the growth of CA, leaves a four-decade legacy of accomplishment

Russell Artzt, vice chairman and founder of CA Technologies, celebrated his retirement with a goodbye party at the company's Islandia headquarters Wednesday, August 5, 2015, with family, friends, and employees. Photo Credit: Danielle Finkelstein

Russell Artzt, the pioneering software engineer who co-founded CA Technologies, bounded onto a stage at his retirement party Wednesday to find himself in a position he didn't regularly take during his 39 years with the company: the spotlight.

For decades, Artzt was the behind-the-scenes technical guru while his partner, Charles Wang, was the company's brash and charismatic public face. Together, they guided CA's tumultuous rise, growing it into the first software maker to generate $1 billion in sales and become one of Long Island's largest companies.

"I wanted to do technology. That's my passion," Artzt, who is 68 and lives in Old Westbury, said in an interview. "I didn't want to run the company."

Nonetheless, Artzt's mark has been lasting at CA, formerly named Computer Associates. He played a key role in shaping the company's core programs to run mainframe computers. And while it has been several years since Artzt was involved in running day-to-day operations -- his current title is vice chairman and founder -- company officials said his departure, planned for September, marks a turning point.

"It's not very often that you get to celebrate an innovator and a founder of a company," CA chief executive Mike Gregoire said at Artzt's retirement party at the company's former headquarters in Islandia.

Artzt leaves CA, now based in Manhattan, with the company at a crossroads.

After decades of building a hugely profitable business selling software to corporations and large institutions, CA revenue has stagnated.

CA Technologies co-founder Russell Artzt at his Manhattan office on July 27, 2015. Artzt is retiring from CA Technologies nearly 40 years after he and Charles Wang founded the software giant. Photo Credit: Yeong-Ung Yang

During its most recent fiscal year, the company's sales fell 3.4 percent, to $4.3 billion. CA expects revenue to slide again this year by another 4.4 percent. And its stock is down 4.5 percent this year, closing Friday at $29.07.

To reverse that trend, Gregoire, who took the helm in 2013, is pushing CA to develop cutting-edge software beyond its traditional mainframe programs. As part of that effort, he enacted a sweeping restructuring, including laying off about 1,800 people and replacing many with engineers who specialize in cloud and mobile software.

Artzt said the strategy is moving CA in the right direction. "There is a sense of urgency again at the company," he said. "There is a feeling again that we can win."

Artzt's send-off was a splashy one, with a Champagne toast, a rock and roll band and a huge cake festooned with sparklers. The company put up a tent, big enough for a circus, outside the office in Islandia. It was lined with 10-foot-tall photos depicting the guest of honor over the decades, prompting partygoers to comment that Artzt, an avid tennis player, never seems to age.

After three decades of friendship, he and Artzt stopped speaking to each other in 2002, Artzt said, when Wang left Computer Associates as a $2.2 billion accounting scandal was about to shake the company. The case led to the 2004 resignation of chief executive and chairman Sanjay Kumar, now serving a 12-year federal prison sentence for securities fraud. The company paid a $225 million fine to the U.S. Securities and Exchange Commission.

Neither Wang nor Artzt was charged with wrongdoing, and the full story behind their fallout is not clear. More than a dozen current and former CA executives interviewed for this story declined to discuss the rift, saying they didn't want to offend either man.

However, three former executives who spoke on condition of anonymity said the breakup stemmed from Artzt's decision in 2002 to back Kumar -- who had once been Wang's protégé -- to become chairman of CA's board, replacing Wang.

Artzt declined to discuss the matter in detail during an interview. But he said the rift is deeply painful for him.

"Charles and I were friends for a long time . . . and I don't think he wants anyone digging into it," Artzt said. "I still feel badly that we are not friends today."

Wang, majority owner of the New York Islanders, did not respond to interview requests.

Humble beginnings

Artzt was born in the Bronx, the older of two children. His father ran a stationery printing company. The family moved to Kew Gardens, Queens, when Artzt was 10.

After graduating from Bronx High School of Science, Artzt enrolled at Queens College, initially intending to transfer to the University of Chicago after his sophomore year. But he walked into an advanced calculus class one day, saw the future Alice Artzt in the front row, and decided to skip the University of Chicago and stay in Queens.

"I saved my father a few bucks," he said.

Alice Artzt, now a Queens College math professor, introduced her husband to Wang, who was studying education at the school.

Artzt had little interest in the stationery business. (He had tried it for a summer.) So he opted for computers.

After graduation, Artzt and Wang found work together writing code for a defense contractor based at Columbia University. In 1976 they struck out on their own.

Wang and Artzt found tiny offices on Madison Avenue. But they couldn't afford to pay cash. So Wang made the landlord a deal: In exchange for free rent, Artzt would debug his computer.

Initially, they were a subsidiary of a Swiss startup, Computer Associates, which had developed software to sort data on mainframes, refrigerator-sized computers used by large corporations and government agencies.

At the time, mainframes had a habit of erasing files to make room for new ones. Artzt and another engineer, Bill Habermaas, devised a program to help the machines find unused disc space to store new files, instead of arbitrarily wiping away existing data.

"It ended up selling like crazy," Artzt said.

Each morning, Wang brought coffee and bagels for the staff. Each afternoon, Artzt recalled, Wang pushed a cart from desk to desk, handing out ice cream. After work, they played basketball. "It was fun," Artzt said. "We were like a second family."

Within a few years, the New York team had bought out the parent company. And by 1977 they had sales offices in Los Angeles, Chicago and Atlanta. The company moved to Jericho in 1979 and went public in 1981.

From the start, Wang was the chief executive while Artzt oversaw research and development. Former employees said Artzt also played a key strategic role by helping Wang, who was eager to grow, understand the potential and limitations of their products.

"Russ knew what was possible and what wasn't possible," Habermaas said. "He was a reality check for Charles."

As the company grew, Artzt said, he and Wang clashed over whether to develop new programs in-house or acquire them by buying smaller companies. Artzt wanted to build; Wang wanted to buy. Sometimes they compromised, Artzt said. But Wang's strategy typically prevailed.

By the late 1980s the company was aggressively expanding by buying competitors and cutting their staffs. The approach left Computer Associates with a reputation of being more of an acquirer than an innovator, which frustrated Artzt.

"We were known more as an acquisition company, but we really developed a ton of stuff organically," he said.

Wang and Artzt are a study in contrasts.

Wang, who immigrated to New York from Shanghai when he was 8, was regularly profiled in the media and described by former CA executives as being a "larger than life" figure at the company.

Artzt, meanwhile, rarely granted interviews and was generally viewed as approachable and down-to-earth by his subordinates. They regarded him as a tough but amiable manager, who could also be absent-minded, with an offbeat sense of humor, sometimes dressing up in a cape for company events and masquerading as a software superhero.

Artzt's sense of humor and geniality, former executives said, imbued the company with a softer side that helped balance Wang's hard-charging ways.

By the late 1980s, Computer Associates was surging, and in 1989 it became the first software maker to top $1 billion in revenue. The company moved to Islandia in 1992.

Artzt continued to play a key role overseeing research and development and integrating programs amassed through corporate takeovers. He ran CA's security and storage software lines. And he served decades as an executive vice president and a director on the board.

Incredible ride

In 1998, Wang, Artzt and Kumar split a $1.1 billion stock award, drawing shareholder lawsuits. The award was later reduced, but the company's troubles were only beginning.

Several months before Wang left the company in 2002, federal prosecutors began investigating whether Computer Associates was manipulating accounting to boost revenue. Eight company officials eventually pleaded guilty to securities fraud and other crimes, including Kumar in 2006.

The following year, a committee convened by CA's board of directors issued a report accusing Wang of orchestrating the fraud. Wang at the time said the report was not credible, the committee's "sources are those who perpetrated the crimes at issue and then lied about them to both internal company investigators and the government."

The committee also reached a settlement with Artzt to repay $9 million from a 1998 stock award. The report, however, found no evidence that Artzt participated in the fraud.

Over the following years, as CA worked to reform itself, Artzt gradually stepped away from operational leadership. He left the board in 2005. And since 2010 he has headed CA's work with students at Stony Brook University to develop new software.

Artzt sold nearly half of his company stock in 2007, which at the time was valued at around $15 million. He declined to say how many shares of CA he owns today, saying simply he has "a healthy amount of shares." He is not among the company's top 17 shareholders, according to data compiled by Bloomberg.

Artzt, however, clearly owned the stage at last week's party. As the crowd raised hundreds of glasses and sparks flew from his cake, Artzt raised his hands in the air and smiled.